Business Overview
1
KazakhGold Group is one Kazakhstan's leading gold mining companies, employing approximately 3,200 people. It is headquartered at Stepnogorsk, to the north of the capital Astana.
In mid 2005, the Group resumed production following a period of reconfiguring and upgrading its mining operations and the progressive introduction of modern treatment processes. Since then, it has ramped up gold output as the new treatment facilities have come on line, producing 81,984oz in the second half of 2005 and 173,521oz in the first nine months of 2006. The Group's objective is to continue building up production to a level that is more aligned with its large reserve/resource base and thus create one of Central Asia's largest gold producers.
Its three principal operating mines, Aksu, Bestobe and Zholymbet, are located in the Stepnogorsk region and have combined reserves and resources (Soviet classification) of almost 47m oz of gold, believed to be the country's largest. Independent consultants have been appointed to reclassify certain of these reserves and resources to JORC standard, and the first stage of this programme is scheduled for completion in the first quarter of 2007.
This large reserves/resources base, which excludes the eight new properties acquired in 2005, gives the Group the opportunity and capability to raise production above that anticipated at the time of its IPO in November 2005. An accelerated investment plan has therefore been prepared that will significantly increase the long-term production target of the Group. It reduces the average life-of-mine estimated cash production cost per ounce from US$182/oz to US$143/oz, and should place the Group amongst the world's top twenty gold producers. This plan requires an increase in the investment anticipated at the time of the IPO and is being funded by the proceeds of a US$200m Eurobond issue, completed in October 2006. With a yield of 9.375p.c., the 7-year bond is the first of its kind to be issued by a company from Asia or Eastern Europe. It attracted investors from 21 countries and was 3.75 times oversubscribed.
Under the accelerated plan, the focus changes to the use of CIP processing technology. Total annualised processing capacity for the Group will increase from 3.0 million tonnes in June 2006 to 19.5 million tonnes in 2008, which is 3.0 million tonnes ahead of the Group's original plan prepared in 2005.
CIP processing technology has a number of distinct benefits for the Group. It offers the possibility of gold recovery rates of over 90 per cent, compared with some 60 per cent from heap leach processing. Under the accelerated investment plan, the Group will be able to raise average recovery rates from 73.0 per cent to 82.3 per cent. CIP processing also provides a more stable and predictable cash flow, as heap leach technology loses its effectiveness at the low winter temperatures experienced in Kazakhstan. CIP technology allows the processing of both oxide and sulphide ores, and is ideally suited to regions such as Northern Kazakhstan, where the Group's three main mines are located.
While production will be increased significantly from 2009, the accelerated investment plan does mean that production growth will be less dramatic in 2007 and 2008, compared with the original 2005 plan. This arises principally from the delayed construction of Bestobe's CIP plant, originally scheduled to be operational from 2007.
KazakhGold's principal mining operations benefit from a number of distinct cost advantages:
- Convenient location in well-established mining area with good infrastructure
- Large reserves amenable to low-cost modern mining and processing techniques
- Competitive labour and electricity costs
- Modest royalty payments
- Local currency stability – more than 60p.c. of costs are denominated in local currency